A Fine Deal but a Bad Bargain

A blog about business and economics.
Jan. 2 2013 9:15 AM

A Fine Deal but a Bad Bargain

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Did President Obama play a strong hand weakly?

Photo by CHRIS KLEPONIS/AFP/Getty Images

Something I've noticed this week is that the people most inclined to think that the White House struck a bad bargain on the fiscal cliff over the weekend are generally also the people who were most hostile to the much grander bargain that was almost reached a couple of weeks ago in which taxes would have gone up by $1.2 trillion and been offset by $1.2 trillion in spending cuts. But it's actually quite difficult to construct a coherent viewpoint from which the deals are both bad. Which leads me to the conclusion that while the weekend deal looks pretty lame to me from the viewpoint of Obama's stated negotiating objectives, that says more about the stated negotiating objectives than about the deal.

It's a bad bargain, in other words, but a fine deal.

The way this works is that Obama started out by saying he could easily pocket $800 billion in revenue "for free" but was willing to dangle huge spending cuts in front of John Boehner in order to obtain billions more. That was a pure Pete Peterson agenda totally detached from the basic economic reality of the present day—high unemployment, low inflation, and ultra-low interest rates. But Boehner turned that balanced deal down, at which point the natural strategic move for Obama would have been to firm up his position and go over the cliff in a to-the-mattresses fight for the $800 billion he believed he could secure. Instead, Obama blinked and settled for more like $600 billion in tax revenue in exchange for the guarantee that he'd be able to secure the one year UI extension, the five year extension of stimulus credits for poor people, and the clean energy production tax credits.

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If you don't think we should be worrying about the budget deficit, you shouldn't be enthusiastic about the overall state of FY 2013 fiscal policy but you should still think this deal is clearly superior to the fight-like-a-dog-for-the-extra-two-hundred-billion-bucks option. 

That's why Paul Krugman—who's normally eager to castigate Obama for weak negotiating—is so soft on this deal. It's also why David Brooks, who's a true blue grand bargaineer, is so upset about it. Obama started this process with stated goals that were much more Brooks' than Krugman's. And relative to those goals, he played his hand relatively weakly and ended up achieving surprisingly little progress. But those goals weren't really so important. And relative to the goals that are important—minimizing economic damage in 2013, minimizing cuts in useful spending—the deal that ultimately got made was a pretty good one. Again, that's not to say anyone should be thrilled about FY 2013 fiscal policy. The legacy of the Budget Control Act of 2011 is still with us and still quite pernicious.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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